12. Income Taxes

In March 2020, in response to economic instability prompted by the COVID-19 pandemic, the United States government enacted the Coronavirus Aid, Relief and Economic Security ("CARES") Act. The CARES Act established various stimulus measures, including certain tax provisions. We have utilized certain CARES Act provisions, including modifications to the interest deduction limitation, technical corrections to tax depreciation methods for qualified improvement property and deferral of employer social security payments.

We record Global Intangible Low-Taxed Income (GILTI) aspects of federal income taxes as a period expense. The provision for income taxes includes $3,453 and $537 of GILTI federal tax for the years ended June 30, 2020 and 2019, respectively.

In December 2017, the United States government enacted comprehensive income tax legislation (the “Tax Act”). The Tax Act makes broad and complex changes to United States income tax law and includes numerous elements that affect the Company, including a reduced federal corporate income tax rate of 21%, creating a territorial tax system that includes a one-time mandatory transition tax on previously deferred foreign earnings and changes to business-related exclusions, deductions and credits. The Tax Act also has consequences related to our international operations.

During the year ended June 30, 2019, we completed our accounting for the Tax Act and recorded a benefit in the provision for income taxes of $360 related to the previously recorded one-time mandatory toll charge on deemed repatriation of undistributed earnings of foreign subsidiaries. We also recorded a benefit in the provision of income taxes of $1,032 as a result of retroactive elections made on certain of our foreign tax credits.

Our consolidated financial statements as of June 30, 2018, reflected the provisional effects of the Tax Act, including:

a $2,289 provision for income taxes and reduction in deferred tax assets for the remeasurement of deferred tax assets and liabilities to reflect the reduced income tax rate

a $403 provision for income taxes and increase in current liabilities to reflect the one-time mandatory toll charge on the deemed repatriation of undistributed earnings of foreign subsidiaries.

The components of income before income taxes consisted of the following:


For the Year Ended June 30	2020		2019		2018
Domestic	$	(3,142)	$	2,331	$	19,819
Foreign		58,654		69,174		68,251
Income before income taxes	$	55,512	$	71,505	$	88,070

Components of the provision for income taxes were:


For the Year Ended June 30	2020		2019		2018
Current provision (benefit):
Federal	$	(1,271)	$	(459)	$	81
State and local		401		102		1,744
Foreign		14,705		16,603		15,268
Total current provision		13,835		16,246		17,093
Deferred provision (benefit):
Federal		5,226		858		2,746
State and local		696		432		2,156
Foreign		218		(691)		769
Change in valuation allowance–foreign		1,985		(53)		423
Total deferred provision (benefit)		8,125		546		6,094
Provision for income taxes	$	21,960	$	16,792	$	23,187

Reconciliation of the federal statutory rate to the Company’s effective tax rate were:


For the Year Ended June 30	2020		2019		2018
Federal income tax rate	21.0	%	21.0	%	28.1	%
State and local taxes, net of federal benefit	1.7		0.6		1.5
Foreign income tax rates	3.6		4.1		(4.8)
Global Intangible Low-Taxed Income	6.2		0.8		—
Changes in uncertain tax positions	5.2		(1.0)		1.1
Increase in valuation allowance	3.6		—		—
Recognition of federal and foreign tax credits	(0.9)		(2.5)		(0.7)
Exercise of employee stock options	—		(0.4)		(4.3)
Mandatory toll charge from Tax Act	—		(0.5)		0.5
Reduction of deferred tax assets	—		—		3.9
Other	(0.8)		1.4		1.0
Effective tax rate	39.6	%	23.5	%	26.3	%

Included in other for the year ended June 30, 2020 is (1.3%) related to foreign currency movement, The undistributed earnings of foreign subsidiaries were subject to the U.S. one-time mandatory toll charge and are eligible to be repatriated to the U.S. without additional U.S. tax under the Tax Act. If amounts are repatriated from certain of our foreign subsidiaries, we could be subject to additional non-U.S. income and withholding taxes . We consider undistributed earnings of such foreign subsidiaries to be indefinitely reinvested. At June 30, 2020, our cash and cash equivalents and short-term investments included $89,596 million held by our international subsidiaries. We do not provide income taxes for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely.

The tax effects of significant temporary differences that comprise deferred tax assets and liabilities were:


As of June 30	2020		2019
Deferred tax assets:
Employee related accruals	$	5,703	$	5,735
Inventory		726		4,766
Environmental remediation		974		1,128
Net operating loss carry forwards–domestic		1,618		902
Net operating loss carry forwards–foreign		5,221		3,703
Operating lease liabilities		5,732		—
Other		6,340		6,302
		26,314		22,536
Valuation allowance		(3,403)		(808)
		22,911		21,728
Deferred tax liabilities:
Property, plant and equipment and intangible assets		(6,108)		(6,071)
Operating lease ROU assets		(5,657)		—
Other		(921)		(772)
		(12,686)		(6,843)
Net deferred tax asset	$	10,225	$	14,885

Deferred taxes are included in the consolidated balance sheets as follows:


As of June 30	2020		2019
Other assets	$	11,430	$	16,770
Other liabilities		(1,205)		(1,885)
	$	10,225	$	14,885

The valuation allowance established against the deferred tax assets were:


As of June 30	2020		2019		2018
Balance at beginning of period	$	808	$	861	$	438
Provision for income taxes		2,595		(53)		423
Balance at end of period	$	3,403	$	808	$	861

The Company establishes valuation allowances against certain foreign and state deferred tax assets when management believes that, after considering all available evidence, it is more likely than not the assets will not be realized.

We have $31,732 of state net operating loss carry forwards. $14,332 that will expire in 2021 through 2038, and $17,400 that do not expire. In addition, we have $23,362 of foreign net operating loss carry forwards of which most are in jurisdictions that have no expiration.

As tax law is complex and often subject to varied interpretations, it is uncertain whether some of our tax positions will be sustained upon examination. Tax liabilities associated with uncertain tax positions represent unrecognized tax benefits, which arise when the estimated benefit recorded in our financial statements differs from the amounts taken or expected to be taken in a tax return because of the uncertainties described above. Substantially all of these unrecognized tax benefits, if recognized, would benefit our effective income tax rate. The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:


As of June 30	2020		2019		2018
Unrecognized tax benefits–beginning of period	$	6,343	$	7,000	$	6,553
Tax position changes–current period		2,850		528		1,749
Tax position changes–prior periods, net of settlements with tax authorities		108		(317)		(994)
Lapse of statute of limitations		—		(1,053)		—
Translation		206		185		(308)
Unrecognized tax benefits–end of period		9,507		6,343		7,000
Interest and penalties–end of period		969		750		633
Total liabilities related to uncertain tax positions	$	10,475	$	7,093	$	7,633

We recognize interest and penalties associated with uncertain tax positions as a component of the provision for income taxes. We recognized interest and penalties expense of $214, $94, and $203 for 2020, 2019 and 2018, respectively.

Income tax returns for the following periods are no longer subject to examination by the relevant tax authorities:

U.S. federal and significant states, through June 30, 2008;

Brazil, through December 31, 2014;

Israel, through June 30, 2015 for certain subsidiaries and through June 30, 2016 for certain subsidiaries.